What does the removal of Section 21 evictions mean for landlords?

On 15 April 2019, the Conservative government announced their intention to end “Section 21” evictions.

Predictably, our particular corner of the internet exploded in outrage – much of it based on a misunderstanding of what's being proposed.

So let's look at the facts of what's happened, and what you should do about it…

Background

There are currently two procedures a landlord can use to end a tenancy in a situation where the tenant doesn't want to leave.

The first is called Section 8. This method involves giving one of 17 approved reasons for wanting the tenant to leave. Those reasons include non-payment of rent, breaching the tenancy agreement, the landlord wanting the property back so they can move into it (if they lived there before), and so on.

It involves going to court with evidence of the reason, which often means you’ll be waiting a long time for a court date. And if there are any complications in the case or the landlord can't produce the right evidence, a judge might refuse to order the tenant to leave.

The second is called Section 21. This is known as the “no fault” route, because the landlord doesn't need to give any reason at all. They want their property back because – hey, they just do. So there's nothing to prove, and a judge will normally order the tenant to leave without anyone needing to appear in court.

Section 21 can only be used at the end of a fixed term tenancy, whereas Section 8 can be used at any time. So if a landlord decided they wanted to get a tenant out after just one month of a 12 month agreement, they'd need to use Section 8. However, if they decided after ten months of a 12 month term that they wanted the tenant out, they might decide to just wait until the end and use Section 21 because it's so much quicker and easier.

That's a highly simplified explanation of the two options with lots of details left out, but it's enough to make sense of what's happening now.

What does removing Section 21 mean, in practical terms?

It means two things.

The obvious one is that if a landlord wants to get rid of a tenant, it's going to take longer. The “just ending the contract at the end of the agreed term for no particular reason” option goes away, so landlords will always need to go through the court process.

The less obvious implication is that the whole idea of a “12 month fixed term tenancy” will go away too.

At the moment, the common wording is a bit misleading because a “12 month tenancy agreement” actually means a minimum 12 months. It's actually indefinite, because it just rolls on month to month if nobody takes a specific action to end it. The period stated in the agreement is just the first point at which either side can end it.

Once Section 21 is removed and you can't evict a tenant without a specific reason, the whole idea of a fixed term doesn't apply. If no valid reason crops up for years on end, and the tenant wants to stay, the tenancy continues.

There are other likely effects as well, but I'll cover them later when I give my opinion on this whole issue. For now, let's stick to the facts.

Why is this seen as good for tenants?

Tenants' groups have been pushing for Section 21 to be removed because, on the face of it, it doesn't seem fair. Why should landlords be able to kick someone out for no reason?

The existence of Section 21 means that even if a tenant has done nothing wrong whatsoever, they could be given two months' notice to leave their home.

Why would a landlord want to kick out a tenant who'd done nothing wrong? The perception is that they might do it so they can increase the rent to a level that the current tenant can't afford to pay, or to “punish” the tenant for complaining about the condition of the property.

It's debatable how often either of these things actually happens, but that's the reason for the change. Once Section 21 is removed, tenants will know that they can't just be kicked out on a whim without a legally valid reason.

Why is this bad for landlords?

In practice, a lot of landlords use Section 21 as a quick, “cut your losses” solution to a problem.

Say that a tenant pays their rent very erratically. They're usually at least a few weeks behind, sometimes a couple of months.

In this scenario, using Section 8 to prove the rent arrears in court and remove the tenant could take a long time, and isn't guaranteed to be successful.

So if it's close enough to the end of the fixed term, landlords often wait and just use Section 21 instead. They don't need to explain “rent arrears” as the reason (or be asked to prove it): they just give no reason, and the whole thing gets sorted much more quickly.

This option is now being taken away, which means landlords will always need to have a reason – and that reason will need to be proven in court. As a result, troublesome situations could take longer and be more expensive to resolve.

As a property investor, what should you do?

Firstly: don't panic. Nothing's going to happen for quite a while yet.

The recent ban on tenant fees took years to go from proposal to implementation. And in the scheme of things, that was a relatively simple change. This proposal will involve large-scale changes to the Housing Act, so it's not going to happen any time soon.

(It's technically only a “proposal” so might not happen at all, but because it has broad public support it'd be too unpopular to backtrack on now it's been announced. It could be watered down, though.)

Next, continue not panicking. Whenever there's a change that affects landlords, everyone goes nuts and all sorts of misinformation ends up flying around.

It doesn't mean “lifetime tenancies”

It doesn't mean you won't be able to sell a property, or move back in if it was your home

It doesn't mean mortgage lenders will withdraw from the market

Now that you’ve stopped panicking, you might want to consider making adjustments like:

Holding a bigger contingency fund to cover times when the rent isn't being paid

Taking out Rent Guarantee Insurance

Changing the type of tenant you're willing to take on

Stepping up the reference checks you make

But there's plenty of time to put plans in place and adapt your strategy as required.

What's my opinion?

I've done my best to keep my opinion out of this, but seeing as you asked…

In principle, I've got no problem with getting rid of Section 21 at all. You could argue that even though a (say) 12 month tenancy agreement is only a minimum, it creates unnecessary uncertainty for both sides as the date approaches. The landlord might use it as a prompt to increase the rent (often encouraged by their letting agent) when they otherwise wouldn't have thought of it. The tenant might interpret the agreement as “ending” and not know if it'll be renewed, so start thinking about other options when they otherwise wouldn't have done.

I don't see why a landlord shouldn't give a reason – as long as acceptable reasons include wanting to sell the property, or move in. These reasons were included when a similar change was made in Scotland, so I'm sure they will be in England and Wales too.

However: that's all “in principle”. In practice, there are several reasons to be dubious about how well this plan will work out…

Rent increases

One wrinkle is rent increases. If the landlord can increase the rent to some crazy figure whenever they want, isn't this effectively a way of forcing the tenant out?

In the Scottish system, the landlord can (in most cases) increase the rent once per year to whatever they want. If the tenant disagrees, they refer it to a rent officer who decides what it “should” be. Where rent officers derive their rental omniscience from, I don't know.

Instead, I'd suggest a system of inflation-linked rent increases (and decreases) for the life of the tenancy. This would actually be better for landlords: most are in the habit of not increasing the rent for reliable tenants, so over a number of years they end up with the rent being far less than the market would command.

The courts

The other wrinkle-so-big-it's-effectively-a-chasm is the court system, and how long it takes to get a case in front of a judge. Even when the court date happens, there are too many situations where the judge can throw the case out or the tenant can pay just enough of their rent arrears for the case to fall apart.

If Section 21 is abolished without any changes to the court system, the situation will get even worse – because thousands of extra cases that previously would have been sorted on a “no fault” basis will need time from a judge.

It will therefore take even longer for situations to be resolved – and landlords will (quite rationally) only be willing to rent to tenants with an absolutely spotless set of references.

This seems likely, to me, to be a major unintended consequence of this measure – unless real changes are made to the court system, and landlords are convinced that those changes will allow them to gain possession quickly when they need to.

Alternative solutions

I honestly believe that if landlords had faith in a system that allowed them to quickly and painlessly get their property back when they had a legitimate reason, they wouldn't feel the need to fight for Section 21 at all.

Will the government be sensible enough to design and fund such a system at the same time as making these changes? I don't hold out a lot of hope: that part is expensive and difficult, and not many votes will be won or lost based on it.

I also believe that a major reason the government has come under pressure to remove Section 21 is the language involved. “Landlord” and “tenant” are feudal. “Eviction” implies forcing someone out under duress, when it's actually just ending a contract after the fixed term has elapsed. The language automatically makes each side think the other is acting in bad faith.

Could there have been an easier solution?

One big issue for tenants is that two months genuinely isn't much time to find somewhere else to live and move your entire life. This isn't solved by removing Section 21, because if the landlord decides to sell or move in (or even gets the property repossessed by the lender for not paying their mortgage), the tenant will be in exactly the same difficult position. Indeed, most of the case studies in the media around this issue have been along the lines of “the landlord said he wanted to sell the property and I had to get out”. None of those situations will be helped by removing Section 21.

Increasing the notice period to three or four months would be of far more practical use. That would require larger deposits to cover the risk of non-payment in the final months, but it wouldn't be such a problem if deposits could be “ported” between properties to avoid stumping up a new one before the old one comes back.

But thinking creatively isn't as politically appealing as “banning” something, so here we are. How will things play out? I have no idea. The only thing I know for sure is I've got a major updating of my book on my hands…

Disclaimer

All content is for informational purposes only. Nothing on this website should be interpreted as "advice". I make no representations as to the accuracy, completeness, suitability or validity of any information on this site and will not be liable for any errors or omissions or any damages arising from its display or use. View the full disclaimer and privacy policy.